Jesse Livermore

[kennynah]

"There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!"

almost everyone i know, who is very serious about trading, has gone down this path.

the difference between the eventual winners and losers? the former continues onwards after learning the lesson above, and the latter quits.

note that many have to relearn how not to lose money many many times over...before it is eventually ingrained into a habit...

so, for all of us who are depressed about how bad things have gone....dont despair... as long as one keeps trying, one will eventually succeed.... the sure way to fail, is to quit now.

[millionairemind]

K - Can't agree with you more.

Just to add one point.

Go back and examine ALL your trades. The winners and your losers and learn from them. You will find out that your BIGGEST losers were the ones that did THE MOST DAMAGE to your portfolio because you held on to them for too long... (been there, done that..haha ). Go back and recalculate your returns if you had CUT ALL YOUR LOSSES SHORT(for stocks) at 7%. Would your portfolio return have been significantly improved???

Remember this lesson well so that you don't repeat them again.

[millionairemind]

“…it is what people actually did in the stock market that counted – not what they said they were
going to do.”

Livermore studied his mistakes objectively…”the only way you get a real education in the market is
to invest cash, track your trade, and study your mistakes!” It is emotionally difficult to review you
mistakes, since the speculator must wade through his own bad trades and blunders. And these are
not simple blunders; these are blunders that cost money. Anyone who has lost money by investing
poorly knows how difficult it is to reexamine what occurred. The examination of a losing trade is
tortuous but necessary to ensure that it will not happen again. Livermore was brutal in self-analysis.
He told his sons his conclusions: “Successful trading is always an emotional battle for the
speculator, not an intelligent battle.”…He knew that his biggest enemy was his own emotions.
“We are the sum total of our experience.” When asked what makes a good stock speculator,
Livermore replied “…it’s an aptitude for the game, a stomach for the ride, and the ability to see what
is happening without emotion. The ability to make observations that others don’t and a good
memory….Only speculate if you can make it a full-time job. Don’t take tips of any kind, no matter
where they come from. Don’t worry about catching tops or bottoms, that’s fools play. Keep the
number of stocks you own to a controllable number. It’s hard to herd cats, and it’s hard to track a lot
of securities. Take your losses quickly and don’t brood about them. Try to learn from them but
mistakes are as inevitable as death. And only make a big move, a real big plunge, when a majority
of factors are in your favor….every once in a while you must go to cash, take a break, take a
vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions.”
“The unsuccessful investor is best friends with hope, and hope skips along life’s path hand in hand
with greed when it comes to the stock market. Once a stock trade is entered, hope springs to life. It
is human nature to be positive, to hope for the best. Hope is an important survival technique. But
hope, like its stock market cousins ignorance, greed, and fear, distorts reason. See the stock market
only deals in facts, in reality, in reason, and the stock market is never wrong. Traders are wrong.
Like the spinning of a roulette wheel, the little black ball tells the final outcome, not greed, fear or
hope. The result is objective and final, with no appeal.

mm comments - study all your past mistakes. Record all your losses into a note book or an Excel sheet (I use Excel) with dates of trade entered, price entered, trade exited, profit % or loss % and the reasons behind the exit.

It is our loss-making trades that teaches us the most....Don't shy away from them. Understand Y you make them and remember the lesson well so that you don't commit them again. They will help you and me become better investor/traders in the future

Hope you huat ar.

[kennynah]

it's tiring but very necessary step for all serious traders/investors to perform this evaluation step...

necessary not only to evaluate the losing trades but the winners as well. this is a very time consuming affair becos u need to review thru all the facts that led to the opening, holding and closing trades. without a proper log and price chart of your stock, it is almost impossible to do this review.

the usual post trade evaluating criteria include :

a) $ mgt - was there over/under commitment
b) TA/FA done at that time or the lack of it
c) why that entry and exit prices
d) was there a clear risk/reward analysis before committing the opening position - target profit and acceptable losses
e) what was/were the motive/s of the trade (hedge, one directional bet, earning option premiums, capturing volatility, etc)
f) was the trade strategy correctly adopted and deployed (in the most simplest sense, why Long Call when should have Short Put)
g) greed, fear, hope...which influenced the decision to open/hold/close trades
h) were "repair" strategies considered, if at all needed
i) (for options) reasons for choosing correct strikes/expiration mths

(above are really just some review variables...u may have many others... no one can say what is a best set of variables)

JL had a habit of locking himself, once a year, in a bank vault, complete with food/drinks and amenities, so that he can pour over all of his trades he made that...and to touch/hold/feel/smell and do whatever else he did (maybe rolled tobacco leaves and smoking them) with his cash....odd fella....

but the point remains that we all must review periodically all of our trades...

u see, if we dont, we wont know what f**k** us and what rewarded us... we keep doing the same thing and hope for better results...some have defined this as "stupidity"...i agree.

what is an appropriate period to perform reviews? answer is.. up to you, it is subjective... some people do it quarterly, some bi-annually, and less frequent traders, may do it once annually. some people even do it daily at the end of the mkt...

but imo, i think it is most useful when we step away from active trading, be focused on the review tasks at hand and dont open new ones until we are through with the review, with a self given report card...then this way, we can repeat the successes and try to stop the bad habits... but i assure u....one time exercise wont produce solid results..

habits are formed through repetitions...so, unfortunately, we dont become gurus thru 1 or 2 review..we get better..but it will take many many rounds of serious reviews to improve significantly....

just like 1 time losing...believe me...that wont be the last time... so, splice your investible money up into at least 5 sub amounts..($100K means $20K each round)...be prepared to lose many rounds before u begin making money...

finally.... i part this post with this common adage :

first, learn how not to lose money, before embarking the dream of making some...
second, most will fail, undoubtedly to make money and we must know if we are cut out to invest by our own senses or we need professional help
third, success comes from not repeating failures
fourth, success is never a short term affair...it takes continuous efforts, corrections and revisions... (just like athletes train everyday for years and years before only a few eventually get GOLD olympic medals)...

good luck and i wish one and all HUat Huat....

[helios]

it's tiring but very necessary step for all serious traders/investors to perform this evaluation step...

- first, learn how not to lose money, before embarking the dream of making some;

- second, most will fail, undoubtedly to make money and we must know if we are cut out to invest by our own senses or we need professional help;

- third, success comes from not repeating failures;

- fourth, success is never a short term affair...it takes continuous efforts, corrections and revisions.

Ó'heavenly divine post ... this is by far, óne of the best quotes by Ken ge ...

(i have to scribble down in the spellbook).

[millionairemind]

“I believe that having the discipline to follow your rules is essential. Without specific, clear, and
tested rules, speculators do not have any real chance of success. Why? Because speculators
without a plan are like a general without a strategy, and therefore without an actionable battle plan.
Speculators without a single clear plan can only act and react, act and react, to the slings and
arrows of stock market misfortune, until they are defeated.”

“…the market will often go contrary to what speculators have predicted. At these times, successful
speculators must abandon their predictions and follow the action of the market. Prudent speculators
never argue with the tape. Markets are never wrong, but opinions often are.”

mm comments - whether you are a value investor, small time trader, player, growth investor, always have a plan on when you will start buying and when you will sell and exit - either thro' cutting a loss short or taking profits. ESPECIALLY if you are a newbie value investor, think twice, thrice before averaging down. Y? Cos' when you average down, you BETTER BE DAMN SURE that your analysis is correct and the market is wrong...

[kennynah]

i have averaged down enuf times to have lost enuf money to testify that averaging down a losing position, wont make it a winner most times...

when averaging down a loser, higher risks assumed on that losing position...makes sense meh? well...say easy...do difficult..must lose money enuf to realise...so, just know this theory and when the practical negative results show up as a result of averaging down losers, then recall this and hopefully gain some useful lessons...

we all like dat one... many books and people of the past have told us before... but, in hokkien...we also say "bo k*hn buay tua hahn"...hahaha... it's very true...

the difference is only some learn faster than others, and hence suffer lesser losses...while others...pants also gone...finish liao...no more investing...ever again...and miss out the chance to be Warren Buffet...Soros, or just another MM...rich man...good investor...

[millionairemind]

“I never try to predict or anticipate. I only try to react to what the market is telling me by its behavior.”

“Remember, it [the market] is designed to fool most of the people most of the time.”

mm comments - just when everything seems so rosy like last Nov, when our STI was around 3800pts and DOW made a historic high and every analysts out there were giving year end target of 4000pts and above for our STI... the market will turn around and tank. Y? Because all the money that was available was already in the market, who else was there to buy and push the market higher? These are the ppe. who would bot a new car, saying that the market "helped finance it" .. and that it is SO EASY TO MAKE MONEY IN THE MARKET. I remember reading some1 quoting the Joseph Cycle and saying STI will hit 4300 soon.

The market is always out to fool us. When everything seems a total despair, mkt will turn around and move up cos' those who wants to sell would have already sold and gone on to tell all his friends and relatives that the stock market is a LOUSY PLACE TO MAKE MONEY, ONLY TO LOSE MONEY.

The market is made up of people and it is basically mob/crowd psychology. That is Y it is never possible to predict what it will do, you can only FOLLOW ITS GUIDANCE, AFTER THE MARKET HAS CONFIRMED IT.

The book was written more than 60 yrs ago and nothing has changed since.

Be careful out there..

[HengHeng]

Some things never change , richs and woman always bring down a kingdom. Existed since thousands of years ago recorded in history books .. and still remains many years after we pass.

[kennynah]

....woman always bring down a kingdom

you joke, right? women, without them, there wont be a kingdom in the first place...hahaha...